Cyber attacks or other ‘reputation events’ have a direct impact on share price, according to the findings of a report by Pentland Analytics with the insurer Aon plc.
The 2018 Reputation Risk in the Cyber Age study looked at 125 reputation events during the last decade, measuring the impact on shareholder value over the year after. The report found that since the introduction of social media, the impact of reputation events on stock prices has doubled. In the wake of a crisis, the size of a company and the strength of its reputation did little to protect against the loss of value.
Randy Nornes, enterprise client leader, Aon said: “Although risk management awareness and tools have evolved, reputation risk continues to weigh on corporate executives as one of their leading concerns. For the past 10 years, reputation risk has occupied one of the top spots on Aon’s bi-annual Global Risk Management Survey. Savvy companies that develop and use a robust risk management framework can not only better navigate reputation events but can often see a net gain in value post-event.”
At times of crisis, investors often use information about a company shared on social media to re-assess their expectations of future cash flow, which can positively or negatively impact a company’s share price. Report findings showed that companies could add 20 percent of value or lose up to 30 percent of value depending on their reputation risk preparedness and management behaviour in the immediate aftermath of a crisis. The study identified key drivers of successful recovery from a reputation event, including:
Crisis communications must be instant and global;
Perceptions of honesty and transparency are essential; and
Active, social responsibility is critical.
Dr Deborah Pretty, founding director of Pentland Analytics said: “New technologies continue to emerge, such as robotics, artificial intelligence and bionics, all requiring constant vigilance. Technological developments have heightened reputation risk by making it easier, cheaper and faster for people to spread news. Strong visible leadership from the CEO, swift and effective action to address the crisis, accurate and thorough communications and understanding the scale of the task and the need to rebuild trust are critical to successfully navigating a reputation-threatening event.”
How to survive, and thrive:
Respond immediately – A delayed response is almost always costly. Delays can lead markets and the public to question the company’s ability to respond adequately and whether the information provided to the public could be trusted. Delays also provide more time for social media users to dictate the narrative around the crisis, rather than letting the company control its crisis response message. Deep commitment to risk preparedness helps to reduce delays when crisis strikes.
Know the facts – Move quickly to gather accurate and complete details about the crisis and its potential impact on the company and the public. Having to issue corrections as the response proceeds will undercut confidence in the company’s crisis efforts.
Be decisive – Companies are typically rewarded for responding decisively to a reputational crisis. For example, a winner might move quickly to protect consumers following a data breach or to shut down production of a flawed product and quickly announce recall plans. Strong, visible leadership from the CEO is pivotal to a value-creating response.
Be open – Winners move quickly to inform the public of the crisis and provide detailed information about the event, the steps they’re taking to contain it and what they’re doing to protect the public. They’ll also keep the public aware of the progress of their response and any changes to the response plan, should they occur.
Respond globally – The impact of the reputational crisis is best managed by addressing the crisis globally, whether it’s in terms of the information the company shares with markets and the public or the remedies it provides, instead of responding in a piecemeal fashion.
Make amends – Among the cultural shifts affecting the current reputation risk climate is an increasing expectation that companies should not only acknowledge, but also make up for their mistakes. Winners make amends with the public for the impact of the crisis, whether it’s in terms of future product features, consumer protections or restitution, customer data monitoring after a data breach, or engaging in environmental protection activities.
For more visit http://theonebrief.com/protecting-reputation-brand-value-cyber-social-media/.
